Big-name cannabis stocks like Trulieve, Curaleaf, and Green Thumb Industries are among the hottest investments in the sector right now. However, with combined market caps of close to $24 billion, they may not provide the same potential upside that smaller players in the industry might.
If you are looking for pot stocks that are flying under the radar and could score you some great returns, then be sure to put Columbia Care (CCHWF 0.50%) and Fire & Flower (FFLW.F) on your watchlist today. Both businesses are doing well in their respective areas,and their combined valuations don't even total $2 billion.
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Fire & Flower: $300 million market cap
Fire & Flower is one of my favorite cannabis stocks; I always keep a close eye on it and am ready to pull the trigger if the share price returns to its low of about $0.60 earlier this year. The Canadian-based cannabis retailer had 83 licensed stores as of its first-quarter results, which it reported on June 15. What's exciting is that the company is still expanding -- it recently opened its first two stores in British Columbia.
The company is also positioning itself for entry into the U.S. market, once such a move is legal. In February, it announced that it had entered into an agreement with American Acres that will allow it to launch retail cannabis stores in multiple markets, including California, under the Fire & Flower brand. The company will also use its Hifyre retail sales platform, which helps businesses analyze data and identify market trends. Under the agreement, Fire & Flower also has the option to acquire American Acres, but that may not happen until the U.S. legalizes marijuana federally.
For now, Fire & Flower is still growing at a great rate. In Q1, sales of 44 million Canadian dollars for the period ending May 1 were up 91% year over year. And this is just scratching the surface. Fire & Flower could become a big name in the industry, especially with the backing of convenience store giant Alimentation Couche-Tard, which owns 22.4% of the business and has the option to take a controlling interest in the cannabis company.
Between the low market cap, the impressive growth numbers, and its strong potential to get bigger, Fire & Flower is not a pot stock that I expect will stay this small for long. In 2020, the Canadian marijuana market more than doubled in size, with sales hitting CA$2.6 billion. Although doubling again may be a tall task for the industry, an analyst from Stifel projects that it could hit the CA$4 billion mark this year, which would be a year-over-year increase of more than 50%. That, combined with Fire & Flower opening more stores and penetrating one of the country's top markets in British Columbia, makes the likelihood that the company doubles it sales (and its share price) a very realistic scenario.
Columbia Care: $1.4 billion market cap
What I love about Columbia Care is the tech and innovation behind the company. It is always finding ways to create value for both its consumers and investors. The latest example of that is its cannabis discovery tool, Forage, which helps consumers find the product they are after. There's a plethora of marijuana strains out there to choose from, and Forage can help novice users find what they are looking for through a series of questions, starting with whether they'd like to feel energetic, relaxed, euphoric, or "tingly." Earlier, the company launched a virtual shopping experience that allows customers to schedule an appointment with an on-site sales associate, allowing them to browse products and ask questions through a live video stream. It also offers a credit card (a novelty in an industry that desperately needs banking legislation so that it can move away from its reliance on cash) that customers can use at its dispensaries.
In its most recent earnings released May 17, Columbia Care reported sales of $93 million for the period ending March 31, which equated to a year-over-year growth rate of 220%. The New York-based company calls itself the state's "most scaled cultivator" with close to 1 million square feet of cultivation capacity, putting it in a great spot to grab significant market share in what could be one of the hottest recreational pot markets of 2022. Columbia Care also completed the acquisition of Ohio-based CannAscend earlier this month, and management says that it will also be among the most scaled operators in that state as well. The company has dispensaries located in 12 states plus Washington, D.C.
At a price-to-sales ratio of about 5, Columbia Care looks dirt cheap compared to bigger multistate operators:
CCHWF PS Ratio data by YCharts
Its relatively low valuation and the potential to dominate the New York market make Columbia Care a stock that could be a hot buy -- one that could even double in value going forward. It can achieve that by simply gaining more popularity (which is possible as it expands its presence in New York), which will lead investors to pay more of a premium for the stock. But even if that doesn't happen, the company is generating terrific growth numbers and sales are more than doubling -- that alone could ensure it doubles in value even if it stays at the same revenue multiple.
